Are South Korea’s powerful families facing the end of their rule?

By Jonathan Soble, Jeyup Kwaak
and Choe Sang-hun / NY Times News Service

Forget Machiavelli, or Game of Thrones. When it comes to staying in power, South Korea’s richest business clans have the game plan down.

There is the charity maneuver, in which family members park their stakes in their business empires in philanthropic nonprofits, letting them keep control without paying heavy taxes.

There is the new company maneuver, in which they create new firms that strike lucrative and friendly business deals with the others they control.

And then there is old-fashioned corporate engineering, in which they merge arms of their empires together to consolidate power, even as other shareholders complain.

With South Korea’s biggest business empire, Samsung, caught up in a nationwide political scandal, a new generation of South Korean leaders has vowed to rip up that playbook.

Major candidates in Tuesday’s election for president have said they would clamp down on South Korea’s family-controlled business empires, called chaebol, which dominate the country’s economy and have amassed immense political power.

“Chaebol family control as we know it could end with this generation,” said Kim Woo-chan, a professor of finance at Seoul-based Korea University Business School, pointing to an intensifying backlash against inherited wealth. “An opportunity as good as this one is unprecedented.”

However, that could be easier said than done, South Korean officials and experts have said.

While the public blames the chaebol for an embarrassing series of political and business scandals and for holding back the country’s once surging economy, they continue to hold considerable political power. Their controlling families have also proved adept at finding ways to keep control, even as they face increasing challenges from inheritance taxes, unhappy outside investors and their own family squabbling.

“Leaders, markets — they don’t change overnight,” said Rhyu Sang-young, a professor of political economy at Yonsei University in Seoul. “Every culture has a strong legacy, inertia. It takes time.”

South Korean President Moon Jae-in, sworn in yesterday, has vowed to stop families from using nonprofit foundations, complicated shareholding plans and other methods to keep control of businesses. One of his main advisers is Kim Sang-jo, an economist known for hawkish views on the chaebol.

However, the South Korean Democratic Party, led by Moon, holds only 119 seats in the 300-member South Korean National Assembly. The Democrats would find it hard to get support from rival parties in passing chaebol reform bills through a fractured legislature, where a pro-business lobby also remains strong.

Passing a bill would take many months of wrangling.

Moon has also promised to make prosecutors more independent and to make it more difficult for a president to abuse the power of the office, limiting the ability of chaebol to collude with officials and escape justice. However, such reforms would likely require a revision of the constitution, which would be very difficult to pull off given the nation’s fractious politics.

Mounting distrust of the chaebol culminated earlier this year in the arrest and indictment of Jay Y. Lee, Samsung’s de facto chief, on bribery and other charges related to a scandal that ousted South Korea’s president and led to Tuesday’s election.

Lee is a member of the third generation of a family that controls a business empire that makes its famous mobile phones; builds the world’s tallest skyscrapers — an affiliate constructed the Burj Khalifa in Dubai; operates hospitals, hotels and theme parks; and even offers credit cards.